ESOPs refer to plans that give employees the right to purchase a certain number of the company’s shares instead of salary. This provides the employee with a virtual stake and helps to reduce the risk of the founder. This blog will help you understand the procedure to issue ESOP
The Process has been mentioned below
- Special Resolution has to be passed by the Board of directors to create ESOP pool. In ESOP pool you need to mention that how many shares are allotted for ESOP.
- File form MGT-14 to ROC (It provides the information of how many ESOP the company is issuing or to say that the company has ESOP of this percentage).
- Form ESOP Committee. ESOP committee can be a subset of the board of directors or all the directors can be the part of it.
- Draft the ESOP Scheme, in which you need to mention the rules and regulation regarding ESOP. After drafting it needs to be approved by the shareholders of the company.
- After approval and based on the ESOP scheme the ESOP Committee recommends the board which employee is eligible for ESOP. There shall be a minimum period of one year of the vesting period, which can be extended by the ESOP Committee but cannot be decreased, between the grant of options and vesting of the option.
- The board of directors then decides whether to allow ESOP to the eligible employees, they can either accept it or reject it.
- If Accepted, ESOP is granted to the employees.
This is the exact procedure to issue ESOP in India.